News Annual figures
Fonterra realizes loss of 600 million dollars
The New Zealand dairy cooperative Fonterra realized a loss of $2018 million for the past financial year (July 2019 to June 605), it announced in its annual results on Thursday, September 26. "This has been a difficult year for us, but also a year in which we have taken steps for the future," said Miles Hurrell, the cooperative's director.
In addition to the $605 million net loss, EBIT (earnings before interest and tax) declined 9% to $819 million. According to CEO Miles Hurrell, part of the loss can be explained. “For example, we have chosen to reduce the carrying amount of several of our assets and take into account accounting adjustments† This totaled $826 million, contributing to the loss of $605 million."
Hurrell reports that this mainly concerned DPA Brazil, Fonterra Brands New Zealand and China Farms. "The expected revenues from those companies were threatened in the past fiscal year by changes in the local economy, increased competition or various business challenges. This has forced us to reduce book values."
However, the cooperative's figures show that earnings per share are higher than expected: $0,17 per share, instead of the expected $0,10 to $0,15. “Our largest company (New Zealand Ingredients) gross margin was $1.332 million, up 3% from last year, mainly due to higher sales and pricing performance.” The final milk price will eventually be $6,35 per kilo of milk solids (converted about €3,65 per 11,5 liters of milk).
'Three-point plan produces results'
Fonterra presented a so-called 'three-point plan' in September 2018: make an inventory of the company, get the basics right and provide clear forecasts. According to Hurrell, this helped organize the cooperative. "This is especially evident in our improved cash flow, lower debt and significant cost savings." Under this plan, the dairy cooperative sold, among other things, Tip Top for $380 million and the share in DFE Pharma sold for $633 million. "The relationship with Beingmate has also been scaled back and we are looking at options to reduce our financial stake in this company."
The three-point plan further aimed to reduce Fonterra's debt by $800 million. “We expect to achieve this target by the end of the current fiscal year through the sale of Tip Top and its stake in DFE Pharma,” Hurrell wrote in a statement. the explanation† "In addition, we reduced our capital expenditures last fiscal year by $261 million, while our target was $200 million. Finally, we reduced operating expenses by $185 million."
New strategy
At the same time as the presentation of the annual figures, Fonterra will also present a new strategy for the 2019/2020 financial year. Our new strategy focuses on 3 core topics: healthy people, a healthy environment and a healthy business. Within the framework of these 3 themes, the cooperative will focus on, among other things, paediatrics, an active lifestyle and aging. "In addition, we also want to develop new markets in the Asia-Pacific region (particularly countries in East Asia, South Asia, Southeast Asia and Oceania)."
In the long run, the processor aims to increase earnings per share. For the coming financial year it wants to achieve an earnings per share of $0,15 to $0,25, while in 5 years this should be about $0,50 per share. The cooperative has also revised its dividend policy. "Under the new guidelines, we expect the dividend payout to be 40% to 60% of net profit, where it was previously 65% to 75%." This year however, for the first time in history, no dividend was paid due to the heavy loss.
* This article is about New Zealand dollars.
Kimberly Baker
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